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Fair Value | 9 Months Ended
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Sep. 30, 2014
Fair Value |
Fair Value | Note 13 – Fair Value Relevant accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability. The following table summarizes the Company's financial instruments that were measured at fair value on a recurring and nonrecurring basis at September 30, 2014. The impaired loans shown below are those in which the value is based on the underlying collateral value.
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Description of Financial Instruments |  | Fair Value at September 30, 2014 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Recurring |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government-sponsored enterprise securities |  | $ | 18,465 |  |  |  | — |  |  |  | 18,465 |  |  |  | — |
Mortgage-backed securities |  |  | 133,769 |  |  |  | — |  |  |  | 133,769 |  |  |  | — |
Corporate bonds |  |  | 890 |  |  |  | — |  |  |  | 890 |  |  |  | — |
Equity securities |  |  | 6,130 |  |  |  | — |  |  |  | 6,130 |  |  |  | — |
Total available for sale securities |  | $ | 159,254 |  |  |  | — |  |  |  | 159,254 |  |  |  | — |
Nonrecurring |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans – covered |  | $ | 3,666 |  |  |  | — |  |  |  | — |  |  |  | 3,666 |
Impaired loans – non-covered |  |  | 2,982 |  |  |  | — |  |  |  | — |  |  |  | 2,982 |
Foreclosed real estate – covered |  |  | 3,237 |  |  |  | — |  |  |  | — |  |  |  | 3,237 |
Foreclosed real estate – non-covered |  |  | 11,705 |  |  |  | — |  |  |  | — |  |  |  | 11,705 |
The following table summarizes the Company's financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2013.
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Description of Financial Instruments |  | Fair Value at December 31, 2013 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Recurring |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government-sponsored enterprise securities |  | $ | 18,245 |  |  |  | — |  |  |  | 18,245 |  |  |  | — |
Mortgage-backed securities |  |  | 147,187 |  |  |  | — |  |  |  | 147,187 |  |  |  | — |
Corporate bonds |  |  | 3,598 |  |  |  | — |  |  |  | 3,598 |  |  |  | — |
Equity securities |  |  | 4,011 |  |  |  | — |  |  |  | 4,011 |  |  |  | — |
Total available for sale securities |  | $ | 173,041 |  |  |  | — |  |  |  | 173,041 |  |  |  | — |
Nonrecurring |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans – covered |  | $ | 15,284 |  |  |  | — |  |  |  | — |  |  |  | 15,284 |
Impaired loans – non-covered |  |  | 13,020 |  |  |  | — |  |  |  | — |  |  |  | 13,020 |
Foreclosed real estate – covered |  |  | 24,497 |  |  |  | — |  |  |  | — |  |  |  | 24,497 |
Foreclosed real estate – non-covered |  |  | 12,251 |  |  |  | — |  |  |  | — |  |  |  | 12,251 |
The following is a description of the valuation methodologies used for instruments measured at fair value. Securities Available for Sale — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy. If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 on the valuation hierarchy. Most of the fair values for the Company's Level 2 securities are determined by our third-party securities portfolio manager using matrix pricing. Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities. For the Company, Level 2 securities include mortgage-backed securities, collateralized mortgage obligations, government-sponsored enterprise securities, and corporate bonds. In cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Company reviews the pricing methodologies utilized by the portfolio manager to ensure the fair value determination is consistent with the applicable accounting guidance and that the investments are properly classified in the fair value hierarchy. Further, the Company validates the fair values for a sample of securities in the portfolio by comparing the fair values provided by the portfolio manager to prices from other independent sources for the same or similar securities. The Company analyzes unusual or significant variances and conducts additional research with the portfolio manager, if necessary, and takes appropriate action based on its findings. Impaired loans — Fair values for impaired loans in the above tables are generally collateral dependent and are estimated based on underlying collateral values securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined using an income or market valuation approach based on an appraisal conducted by an independent, licensed third party appraiser (Level 3). The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable borrower's financial statements if not considered significant. Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3). Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income. Foreclosed real estate – Foreclosed real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value, based on a current appraisal that is generally prepared using an income or market valuation approach and conducted by an independent, licensed third party appraiser, adjusted for estimated selling costs (Level 3). At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. For any real estate valuations subsequent to foreclosure, any excess of the real estate recorded value over the fair value of the real estate is treated as a foreclosed real estate write-down on the Consolidated Statements of Income. For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2014, the significant unobservable inputs used in the fair value measurements were as follows:
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Description |  | Fair Value at September 30, 2014 |  | Valuation Technique |  |  | Significant Unobservable Inputs |  | General Range of Significant Unobservable Input Values |
Impaired loans – covered |  | $ | 3,666 |  | Appraised value |  |  | Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell |  | 0-10% |
Impaired loans – non-covered |  |  | 2,982 |  | Appraised value |  |  | Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell |  | 0-10% |
Foreclosed real estate – covered |  |  | 3,237 |  | Appraised value |  |  | Discounts to reflect current market conditions and estimated costs to sell |  | 0-10% |
Foreclosed real estate – non-covered |  |  | 11,705 |  | Appraised value |  |  | Discounts to reflect current market conditions, abbreviated holding period and estimated costs to sell |  | 0-40% |
For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2013, the significant unobservable inputs used in the fair value measurements were as follows:
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Description |  | Fair Value at December 31, 2013 |  | Valuation Technique |  |  | Significant Unobservable Inputs |  | General Range of Significant Unobservable Input Values |
Impaired loans – covered |  | $ | 15,284 |  | Appraised value |  |  | Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell |  | 0-10% |
Impaired loans – non-covered |  |  | 13,020 |  | Appraised value |  |  | Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell |  | 0-37% |
Foreclosed real estate – covered |  |  | 24,497 |  | Appraised value |  |  | Discounts to reflect current market conditions and estimated costs to sell |  | 0-10% |
Foreclosed real estate – non-covered |  |  | 12,251 |  | Appraised value |  |  | Discounts to reflect current market conditions, abbreviated holding period and estimated costs to sell |  | 0-40% |
Transfers of assets or liabilities between levels within the fair value hierarchy are recognized when an event or change in circumstances occurs. There were no transfers between Level 1 and Level 2 for assets or liabilities measured on a recurring basis during the three or nine months ended September 30, 2014 or 2013. For the nine months ended September 30, 2014, the increase in the fair value of securities available for sale was $218,000, which is included in other comprehensive income (net of tax expense of $85,000). For the nine months ended September 30, 2013, the decrease in the fair value of securities available for sale was $5,308,000, which is included in other comprehensive income (net of tax benefit of $2,070,000). Fair value measurement methods at September 30, 2014 and 2013 are consistent with those used in prior reporting periods. The carrying amounts and estimated fair values of financial instruments at September 30, 2014 and December 31, 2013 are as follows:
|  |  | September 30, 2014 |  | December 31, 2013
($ in thousands) | Level in Fair Value Hierarchy |  | Carrying Amount |  | Estimated Fair Value |  | Carrying Amount |  | Estimated Fair Value
Cash and due from banks, noninterest-bearing | Level 1 |  | $ | 84,128 |  |  | 84,128 |  |  | 83,881 |  |  | 83,881
Due from banks, interest-bearing | Level 1 |  |  | 251,111 |  |  | 251,111 |  |  | 136,644 |  |  | 136,644
Federal funds sold | Level 1 |  |  | 1,275 |  |  | 1,275 |  |  | 2,749 |  |  | 2,749
Securities available for sale | Level 2 |  |  | 159,254 |  |  | 159,254 |  |  | 173,041 |  |  | 173,041
Securities held to maturity | Level 2 |  |  | 53,821 |  |  | 57,601 |  |  | 53,995 |  |  | 56,700
Presold mortgages in process of settlement | Level 1 |  |  | 5,761 |  |  | 5,761 |  |  | 5,422 |  |  | 5,422
Total loans, net of allowance | Level 3 |  |  | 2,381,959 |  |  | 2,331,525 |  |  | 2,414,689 |  |  | 2,352,834
Accrued interest receivable | Level 1 |  |  | 8,885 |  |  | 8,885 |  |  | 9,649 |  |  | 9,649
FDIC indemnification asset | Level 3 |  |  | 25,328 |  |  | 24,452 |  |  | 48,622 |  |  | 47,032
Bank-owned life insurance | Level 1 |  |  | 44,996 |  |  | 44,996 |  |  | 44,040 |  |  | 44,040
Deposits | Level 2 |  |  | 2,679,012 |  |  | 2,679,281 |  |  | 2,751,019 |  |  | 2,752,375
Borrowings | Level 2 |  |  | 116,394 |  |  | 106,139 |  |  | 46,394 |  |  | 34,795
Accrued interest payable | Level 2 |  |  | 695 |  |  | 695 |  |  | 879 |  |  | 879
Fair value methods and assumptions are set forth below for the Company's financial instruments. Cash and Amounts Due from Banks, Federal Funds Sold, Presold Mortgages in Process of Settlement, Accrued Interest Receivable, and Accrued Interest Payable  The carrying amounts approximate their fair value because of the short maturity of these financial instruments. Available for Sale and Held to Maturity Securities  Fair values are provided by a third-party and are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or matrix pricing. Loans  For nonimpaired loans, fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, financial and agricultural, real estate construction, real estate mortgages and installment loans to individuals. Each loan category is further segmented into fixed and variable interest rate terms. The fair value for each category is determined by discounting scheduled future cash flows using current interest rates offered on loans with similar risk characteristics. Fair values for impaired loans are primarily based on estimated proceeds expected upon liquidation of the collateral. FDIC Indemnification Asset – Fair value is equal to the FDIC reimbursement rate of the expected losses to be incurred and reimbursed by the FDIC and then discounted over the estimated period of receipt. Bank-Owned Life Insurance – The carrying value of life insurance approximates fair value because this investment is carried at cash surrender value, as determined by the issuer. Deposits  The fair value of deposits with no stated maturity, such as noninterest-bearing checking accounts, savings accounts, interest-bearing checking accounts, and money market accounts, is equal to the amount payable on demand as of the valuation date. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered in the marketplace for deposits of similar remaining maturities. Borrowings  The fair value of borrowings is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered by the Company's lenders for debt of similar remaining maturities. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no highly liquid market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include net premises and equipment, intangible and other assets such as deferred income taxes, prepaid expense accounts, income taxes currently payable and other various accrued expenses. In addition, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13504-108611 + Details
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